NEW YORK – Wal-Mart Stores Inc. is cutting orders it places with suppliers this quarter and next to address rising inventory the company flagged in last month's earnings report.
An ordering manager at the company's Bentonville, Ark., headquarters described the pullback last week in an e-mail to a supplier, who said others got similar messages. "We are looking at reducing inventory for Q3 and Q4," said the Sept. 17 e-mail, which was reviewed by Bloomberg News.
U.S. inventory growth at Wal-Mart outstripped sales gains in the second quarter at a faster rate than at the retailer's biggest rivals. Merchandise has been piling up because consumers have been spending less freely than Wal-Mart projected, and the company has forfeited some sales because it doesn't have enough workers in stores to keep shelves adequately stocked.
"We are managing our inventory appropriately," Wal-Mart spokesman David Tovar said in a telephone interview. "We feel good about our inventory position."
The order pullback isn't "across the board" and is happening "category by category," he said in a previous interview.
"In some cases, we're going to be taking less, in some we're going to be taking more," Tovar said.
Wal-Mart shares fell 1.5 percent to close at $74.65 for their biggest decline since Aug. 15.
U.S. chains are already bracing for a difficult holiday season, when sales are projected to rise 2.4 percent, the smallest gain since 2009, according to ShopperTrak, a Chicago-based firm. Wal-Mart cut its annual profit forecast after same-store sales fell 0.3 percent in the second quarter. The company said this week it was adding 35,000 permanent workers and increasing the hours of an additional 35,000, as well as hiring 55,000 seasonal workers.
Wal-Mart's order pullback is affecting suppliers in various categories, including general merchandise and apparel, said the supplier, who has worked with Wal-Mart for almost 20 years and asked not to be named to protect his relationship with the company. He said he couldn't recall the retailer ever planning ordering reductions two quarters in advance.
The pullbacks for this quarter and next imply Wal-Mart is expecting softer demand, Robin Sherk, a New York-based analyst at consulting and research firm Kantar Retail, said in an interview.
In the second quarter, U.S. inventory grew at 6.9 percent and U.S. sales grew at about 2 percent. A year earlier, inventory increased 3.6 percent while sales rose 3.8 percent. Target Corp. stores and Dollar General Corp. held their second-quarter inventory gains to about twice the rate of sales growth vs. triple the pace at Wal-Mart.